On September 6, 2018 the SEC filed a complaint against Joel Burstein for conduct related to a fraudulent scheme connected to an EB-5 regional center. The SEC alleges that Mr. Burstein aided and abetted fraud “in connection with the purchase or sale” of securities, and aided and abetted fraud in the offer or sale of securities.

The alleged facts are a simplified account of some of the conduct alleged in SEC v. Quiros. Investors seeking green cards contributed $500,000 each towards job-creating projects. With Mr. Burstein’s assistance, Ariel Quiros misused investors’ funds, and tried to conceal this conduct using margin loans.

The initial fraud in phases I and II

According to the SEC’s complaint, Mr. Burstein aided and abetted Mr. Quiros’ securities violations related to the purchase of Jay Peak. In mid-2008 a company owned and controlled by Mr. Quiros finished negotiating the purchase of Jay Peak from Mont Saint-Saveur International (“St. Saveur”). In preparation for closing this transaction, Saint Saveur transferred EB-5 investors’ funds to two Raymond James accounts controlled by Mr. Quiros. These funds were allocated to hotel construction per private placement memoranda. Within days of the transfer, Saint Saveur instructed Raymond James and Mr. Burstein (in writing) not to allow Mr. Quiros to use these funds for the purchase of Jay Peak.

Mr. Burstein then insubordinately wired the same funds to Saint Saveur, despite its admonition. He repeated this conduct several times over several months. In sum, this fraudulent conduct resulted in misappropriation of over $21 million of EB-5 investor capital contributions.

The cover-ups of the initial fraud

First cover-up

As a result of the fraudulent transfer of funds, the capital budget for hotel construction was significantly depleted.

To make up for these shortfalls, in June 2008, Burstein helped Quiros secure margin loans from Raymond James in these accounts, with the assets of the limited partnerships impermissibly pledged as collateral. Quiros then began drawing against the accounts and used the borrowed money to pay for construction costs and other project expenses.

To hide the account depletion, Mr. Burstein helped Mr. Quiros purchase U.S. Treasury Bills on margin to be held by the Quiros-controlled accounts.

Second cover-up

In February 2009, the Quiros-controlled accounts had a margin loan balance of $23.8 million, and positive ending balances of approximately $4 million. When transferred to Quiros by Saint Saveur 8 months earlier, the value of these accounts was approximately $25 million. To conceal the low balance from Jay Peak’s auditors, Mr. Burstein helped Mr. Quiros get another margin loan, which was immediately used to pay off the debts on the existing margin loans. As a result, the accounts that should have held investor capital showed a net positive balance of approximately $27 million, despite a net deficit overall. By way of explanation, Mr. Burstein told Raymond James’ Customer Accounts Department that “he did not want the debits to appear on the statements.”

Later fraud: AnC Bio research facility

Same conduct. Different project.

Approximately $18 million was raised from investors seeking green cards to construct a biomedical research facility near the Jay Peak resort. In February 2012, Mr. Quiros opened a margin account at Raymond James under the name of Jay Peak. He then drew against this account to fund the construction of other projects. Additionally, he drew approximately $7 million from this margin loan to purchase another ski hill: Burke Mountain Resort. In March 2014, Mr. Quiros used approximately $18 million of EB-5 investor funds to pay off the margin loan. According to the complaint, Mr. Burstein facilitated all of these transfers, as well as other transfers of these funds “seemingly to hide the misuse.”

Consent to final judgment

On the same day that the complaint was filed, Mr. Burstein filed a Consent to Final Judgment. Pursuant to the SEC’s Proposed Order of Judgment, Mr. Burstein will be permanently restrained and enjoined from violating section 17(a) of the Securities Act, and section 10(b) and 10b-5 of the Exchange Act. He must also pay a civil penalty of $80,000.